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The US Consumer Price Index (CPI) report for December, a key measure of inflation, was just released today by the Bureau of Labor Statistics (BLS). While the CPI release could strengthen the US dollar, it is unlikely to lead to immediate changes in the Federal Reserve’s monetary policy.
The US inflation data arrived in line with expectations. The Year-over-Year (YoY) CPI came at 2.9% as expected, up from 2.7% and the core CPI came in at 3.2%, slightly below the 3.3% estimate.
The inflation was expected to rise by 2.9% annually in December, up from 2.7% in November. Core CPI inflation was forecasted to remain steady at 3.3%. The forecasts suggest a 0.3% increase for the headline CPI and a 0.2% rise for core CPI.
FOMC Meeting
Besides, the FOMC Minutes from the December meeting revealed concerns among Fed officials about rising inflation risks. They also noted that changes in trade and immigration policies could make it harder to control inflation, highlighting their potential impact on the US economy.
However, 10x Research head Markus Thielen expects movement before the January 29 FOMC meeting. “Bitcoin trades within a narrowing triangle, signaling a breakout is imminent — likely no later than the January 29 FOMC meeting,” he noted on January 14. Thielen suggests that lower inflation might spark a Bitcoin price surge. “From a trading perspective, the best approach is to follow the breakout, regardless of direction,” he remarked.
Implications Of Inflation Data and Fed Policy
The incoming Trump administration is expected to adopt stricter immigration policies, a looser fiscal approach, and reintroduce tariffs on imports from China and Europe, which could all push the inflation higher. As a result, markets now anticipate that the Federal Reserve will cut interest rates by just 25 basis points this year, keeping the outlook for the US Dollar stable.
However, with a slow cooling of the labor market and high inflation, the December inflation report is unlikely to lead to major changes in the Fed’s policy, with a 97% chance of no rate change as per CME Group’s FedWatch Tool, at the January 29 meeting.